The energy system is undergoing unprecedented change. The geopolitical landscape of energy is quickly shifting and environmental concerns have shaken the system’s foundations. At the same time, the economics of competing energy sources have changed, and the advent of Fourth Industrial..
The energy system is undergoing unprecedented change. The geopolitical landscape of energy is quickly shifting and environmental concerns have shaken the system’s foundations. At the same time, the economics of competing for energy sources have changed, and the advent of Fourth Industrial Revolution technologies have enabled new business models and made others obsolete.
Background
Energy systems are complex and at the heart of every country’s economy. They comprise diverse stakeholders, various energy sources and all energy-consuming sectors, including industry, buildings and transport. The motive of it aims at supporting the society in the three dimensions of the energy triangle which would include economic development, environmental sustainability and secure and reliable access to energy. These forces offer opportunities to resolve challenges that the global energy system faces today, providing energy access to the more than one billion people who lack it, and meeting demand for an additional two billion people by 2050.
Changes regarding energy policies are being undertaken globally. A few examples include the 195 countries signing the Paris Agreement in 2015; India and China revisiting the planned expansion of their coal-fired power generation fleet; and countries announcing the phaseout of internal combustion engine cars over the next decades. In 2016, 90% of new power sector capacity additions in Europe were in renewable energy. The cost of renewable energy technologies decreased considerably and resulted in the creation of new jobs. In 2016, 9.8 million people were employed in renewable energy industries.
Analysis
Energy systems are experiencing significant changes that are headed by a blend of technological innovation, changes in the supply dynamic, consumptions patterns and policy shifts. Innovations in energy technology have reduced costs, created jobs and supported the reduction of CO2 emission from the energy sector.
The extent to which a country is ready for transition is primarily determined by existing energy infrastructures, the credibility and stability of long-term political commitments, and the availability of capital to finance the energy transition.
In the last decade, technological progress has allowed new forms of producing, storing, transforming and consuming energy, altering the nature of the energy system. Fourth Industrial Revolution technologies, and digitisation, in particular allow for open, real-time, automated communication and operation of a more efficient energy system.
The electricity system is changing, driven by decentralisation, electrification and digitisation. Growing decentralised sources offer an alternative to the current grid to deliver power. This is particularly relevant as access to energy increases in remote locations currently outside of the grid. Electrification is critical for long-term carbon reduction goals14 and technology innovations allow a greater electrification of transport and heating today. The convergence of these trends reinforces and amplifies their individual contributions. For example, the combination of decentralised sources and digitisation has allowed traditional consumers to change their role in the energy system.
Over the past five years, more than 80% of countries improved their energy systems, but further effort is needed to resolve the world’s energy-related challenges. Countries can use these game-changing trends to enhance their energy systems and improve the well-being of their populations. Understanding the urgency and implications of these trends is critical to businesses, governments and society as a whole. In many cases, responding to them will require fundamental shifts in how businesses are run, policies are set, household choices are made and stakeholders collaborate with one another.
According to the Energy Transition Index, there are currently 43 countries that boast well-performing energy systems and high-transition readiness. Europeans countries like Denmark, Sweden and Norway are achieving high scores across most metrics. While there are 14 countries, like Venezuela and Iran, that are facing a potential challenge, largely around environmental sustainability.
Assessment
Our assessment is that policymakers should prioritise the creation of integrated policy frameworks that build a long-term, cross-sectoral vision and stable policy environment, providing certainty in attracting investment towards an effective energy system. We feel that energy efficiency continues to be the most cost-effective energy option and any barriers to its adoption, including providing financial mechanisms, should be removed.
We believe that the adoption of a new “grid edge” technologies globally could bring more than $2.4 trillion of value creation for societies and industries over the next 10 years. This can be established through increasing the efficiency of the overall system, optimising capital allocation and creating new services for customers. Lastly, at a country-level, action built from inclusive public-private cooperation which is rooted in a common fact base, will create value for stakeholders through the energy system and help accelerate the effective energy transition.
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